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Government should NEVER . . . let me repeat that for you in clearer language in case you might misunderstand my meaning . . . ABSOLUTELY NEVER put its fingers into private business affairs for any reason what-so-ever!

Once government gets involved with private business you lose your free market system because then private business must follow the government dictates. That is called SOCIALISM, and it has never worked at any time anywhere on this planet.

It's usually cheaper to simply pay stipends and unemployment benefits to the thousands of people becoming unemployed than to bail out the company that put itself in a position of failure potentially involving thousands of unemployed workers.

Such a company will be on this government life support several times before it finally fails and thousands of workers will lose their jobs anyway along the way.

Although I believe government should for the most part laissez-faire, I agree with SunTzySays in that when many average American would lose their jobs (in the thousands) in such a time a modest bailout should be fabricated; however, I believe the finances should go the the employees who will, in turn, invest in different products which will allow the economy to stabilize after the bankruptcy of such a company.

I believe that the American economy will receive an unbelievable boost if every state received an equal amount of bailout funds in the billions targeting small business, local banks, and working individuals. DOW would resuscitate back to the 14,000's.

If AIG went down, do you know how many jobs would've been lost? Do you know how much greater of a recession we'd be in right now?

Do you? The counter-factual scenario assumes that the failure of AIG would result in something that was avoided.

There are no economic theories which support that it would in fact have to result in anything however. In fact, most of them assume that while AIG would have failed and some people would lose their jobs, many would be gainfully employed by whoever scooped up the useful remains of AIG.

The uncertainty surrounding the various "toxic assets" owned by AIG was largely alleviated through monetary policies rather than the TARP bailout (and for which AIG remains, along with GM, one of the few that we lost money bailing out, where to my mind it would have been better to simply pay off the workers who were not scooped up by the creative destruction of their parent company).

I didn't say a modest bailout should be fabricated. I said it was cheaper to bailout the employees than the failing company. Just to assure that people understand moving forward.

I also don't think your proposal would result in the DOW soaring upward. The DJIA has very little to do with these things. In fact it has almost nothing to do with "main street" economics. It is a composite average of very large corporations (essentially it's "Wall Street" economics). If you're referring instead to GDP/GNP growth instead, I'd be skeptical there that we'd be seeing growth from such an idea either, but I would admit that helicoptering in money would have been smarter than
a) bailing out AIG, GM, Chrysler, etc (picking winners and losers)
b) most of what the stimulus bill was actually spent on.

I'm not convinced that it would have resulted in growth necessarily, but it's basically like a QE or monetary policy injection that you're talking about doing (I'd do less "steering of money" than you're suggesting here), which I suspect would have resulted in some growth had they done that in 2008-9 instead of the contractionary monetary policies that were actually pursued.

a. The "cheaper bailout" I renamed modest since the connotation of cheap is not one I attribute to this which can have value.

b. Were small business, banks, and persons to receive money what do you feign think they would do? Save it? They would spend the money, banks would be able to loan, once again the wheels of the market would turn nationally and the DOW would raise. My hyperbolic statement of the DOW was just such- hyperbolic.

Also, the continual depletion of the house market along with the scare of 2007-2008 for investors made for a cataclysmic time in the DJIA. If investors saw the sales incurred by the bailout of which I spoke, and the sales were consistently increasing, why would they not invest thereby increasing profit but also the DOW itself? I believe in a sort of trickle-up theory: you stimulate the bottom directly and the effect will be felt throughout. This is the natural way things work. Rain is not sucked through a leaf to feed the tree, but once the rain falls in the Earth and contact the roots of the tree, the tree sends sap through its branches and leaves and the tree is sustained. The same is true of our country.

I encourage you to read this wonderful article concerning the bailout the US made and the bailout (with less money) which China made which worked. http://articles.sfgate.com/2008-11-13/opinion/171…

This is the manner of bailout which I believe America would benefit from.

Were small business, banks, and persons to receive money what do you feign think they would do? Save it?

(answer: Yes, that's precisely what they would do). Banks have been receiving money and have been saving it. Same with larger corporations. Most of them are not spending. The level of debt for individuals is hardly any better than that of large capital firms. Hence, they would not "spend it". It might be invested or saved, or used to retire debts. Which is not a terrible thing. But it's hardly stimulative in the way you imagine it.

If you look at the link you posted, essentially what you are suggesting we need is to… save the money. Because that's how China could afford its internal funding for stimulative infrastructure projects, with a massive private and public savings rate. I'm not sure how that idea therefore works here. When we do not have either a public or a private savings rate.

SunTzuSays, you can speak for yourself concerning the saving of funds, but many persons are in debt and were they to receive money sufficient, they would pay off that debt. More persons would be irresponsible and spend the money frivolously- regardless, the money would be put into circulation.

And notice you answered my question in reference to banks and corporations (who would loan if they saw an increase in financial confidence amongst the people (who would have the money to spend). Now, if working persons all received financial stimulation (say $2,000 to $5,000 per working individual) they would spend that money so quickly you would taste the economic refreshment afar.

Now if you had read the entire article, you would have read the following comparison:

AMERICA

"In America, the $700 billion was handed over to the Treasury with few rules and little planning. The money was immediately the subject of fierce lobbying by everyone from crumbling car manufacturers to a Hispanic business group that represents plumbing and home-heating specialists. So far, the chief recipients of the American package seem to be insurance-company executives who can't seem to stop sending their employees on luxury resort vacations. Oddly enough, the bailout has failed to loosen up the credit markets in any meaningful way."

CHINA

"Meanwhile, the Chinese government has been very specific about how its money will be spent: on tax cuts, infrastructure and social programs such as health care and education."

I hardly would call money propelled through programs directed to the people by means of social programs the "saving of money". The result was immediate and the Chinese economy flew back up to incur a National Savings Rate of of 51.2 percent of GDP; America's savings rate is negative so you can figure out what means of bailout works for the people and that which works for corporations.

I read the entire article. I still don't see how it proves anything you're claiming. China's NSR was already high prior to the bailout (that is not mentioned that it was already well above the negative rates present in the US). That's relevant because how you pay for these bailouts matters. Internal savings and accumulated currency reserves are one good way to do so. We have neither. That problem exists whether or not these savings rates improve moving forward. Your proposed solution reminds me of magical dwarf economics.
1) Steal underwear. 2) ??? 3) Profit!!! Because there's no mechanism being described to get from here to there on the savings rates, and hence, no solution being proposed.

I also did not state that banks or corporations would loan money if they received it. I am pretty sure I explicitly said they would save it because that's what they're already doing.

I'm in some agreement that China's stimulus package was a lot better off. It wasn't weighed down with as much pork (depending on how you view China's infrastructure glut of course…). But it's hardly subject to less lobbying either. Large numbers of those funds went to connected party members controlling state-run industries for instance. The difference was largely in the invisibility of that process in China relative to the US, which makes it seem more efficient. It does very much resemble Keynes' pay people to dig holes routine in some respects, but I've not seen much economic evidence that this is in fact really stimulative. China's economy has largely kept humming along because other markets, besides the US, have grown bigger (Brazil, India, Russia, etc) and because they've kept their currency cheap and devalued (a problem that many Euro-zone countries are running into).

In real terms, what has largely failed to shake up the credit markets is monetary policy. Which has nothing to do with these bailouts or the stimulus bill. The Fed has been, among other things, providing banks with credit on their excess reserves, a credit which was well above what bond markets would provide, which discourages lending while shoring up the balance sheets of large banking institutions that were at risk during the 2008-9 banking crisis. This, along with the inevitable banking consolidation that occurred in the wake of consumer confidence in smaller banks, has basically meant that credit markets were frozen. If instead, the fed had charged a negative interest penalty on excess reserves all along, I think we'd have seen a lot more lending, even if a couple large banks had failed.

Apparently you do understand my claims since in your third paragraph first line you agree with the handling of Chinese bailout funds in respect of American bailout funds. The article does not agree with your point concerning the NSR prior to its bailout but asserts in linear terms (due to the succession of words utilized) that the funds being used for stimulus purposes caused a NSR of the above mentioned proportions.

Although you have not asked about the specifics of the plan and have begun to tear it apart, I will ignore this bout of adolescence hokem poke and delineate a blueprint of my intentions with a bailout the manner of which I proposed.

If $550 bill were to be allotted to working American (after the 2008-09 manner in which large corporations were bailed out) and those funds were divided equally between the 50 contiguous states with minute measures defined for its dissemination, there would be relief per state.

Although you largely ignored my example concerning rain being absorbed through the roots of a tree (rather than through its leaves) I will entertain your leisurely ignorance: If the funds were given, injected specifically into small business (start-up and struggling), into local banks, spread to working persons (in the amount of $2,000 to $5,000 contingent upon family members), and if the were the people informed as to the reason behind these actions (in order to encourage spending and the stimulation of the economy, funds would be utilized; liquid currency would flow through the market as drops of cold rain touching sun-scorched saharic regions and relief would make it way to the top in this manner:

The funds (some of which would go back into small-business by means of purchase) would return to the government by form of taxation, frozen credit markets would be able to move deliberately as credit were repaid- this would be as warm sprays on a frozen vault wheel, but it would eventually loosen the funds the banks are currently hoarding and allow for economic leverage sufficient to (and this is a hope) resuscitate the stock market.

Your point is excellent, I must say, concerning charges levied for negative interest penalties on excess reserves as it would act as an incentive for loans to mortgage-bound Americans. I do not know, I must say, the intricacies related to penalties in-depth, but I can see how that would act as a brake to corporate greed.

I ignored your analogies because they're not sound economic theory. Folksy wisdom though it may be… it doesn't have any empirical grounding that it would work.

I also don't see where I resorted to ad hominem. The actual "personal" attacks came where you're defaming the utility of scientific reasoning in other posts, which is fundamentally stupid regardless of who does it (it's just plain idiotic to the point of reducing someone to despair for the species). Here however you seem to have skipped a couple steps of economic theory and reasoning and I pointed that out using the most common humorous objection at hand (the magical dwarf economic theory also applies to most GOP talking points for example).

There still isn't a mechanism in your idea for translating stimulus funds into a larger savings rate in the US economy (or at least, there isn't using current monetary policies), and you've ignored that a) there was in fact a high savings rate in China already, your story does not in fact state that there was not, it merely indicates it has reached insensibly large proportions now and b) their government had massive excess currency reserves meaning they didn't have to borrow further in order to distribute these funds to their industries and populace. Those objections will considerably complicate whatever as yet unspecified mechanisms are to be used to transform and improve the American economy. Essentially what you're proposing would happen is a massive cultural shift in the institutional basis for the American economy. That does not happen because the government moves some money from point A to point B in real life. The government represents a very small portion of the American economic system, particularly where small businesses are concerned (large amounts of government funds or assistance goes to very large businesses, like defence contractors or agricultural or energy firms and vehicle assemblers).

Perhaps giving the money to small business/banks/etc would have been preferrable to giving it to large failing banks and large failing corporations, I'd agree. But it's still a very mysterious step how that forms your tree analogy for growth. And it still resembles basically special interest politics only with local economies favored over well connected Wall St ones. Large numbers of small businesses and banks fail every year, even in good economic times. Partly this is because we have large institutional blocks preventing them from being as competitive as they could be against large capitalized firms (and for which all dumping money in them would do is lose us billions of dollars trying to pick winners and losers just as easily as giving it to GM and AIG may do). Thus my preference would be neither to receive any bailouts or money from the government, with simply monetary policy easing letting the money fall where it may rather than steering it through the political process. Trying to stimulate local businesses by throwing money out there for their taking will not result in much of anything.

It is still a Keynesian absurdity that industrial policy (of the sort that even China engages in) works over the long run.

So- concerning the banking systems and federal reserve, you have an increased proficiency in these subjects which I simply cannot touch because I have not read and studied the matter in sufficient detail so as to provide a reason founded answer which would demonstrate working knowledge of the material at hand; and here is what I am doing about this lack of knowledge:

I went to the library and rented "The Federal Reserve System: Purposes and Function 5th Edition" and "The Federal Reserve: Lender of Las Resort" by Gillian Garcia and Elizabeth Plautz. I will be reading these and becoming familiarized with the banking system so that I can formulate a viable plan for economic resuscitation.

In the meantime, if you are so obliged, would you answer me this: what way do you believe the American system could be economically stimulated so that it would become self-sustaining and generating surplus?

NGDP level targeting.

As far as "generating surplus" that's up to Congress to cut spending (mostly). Tax wise, I'd remove the distinction between income and capital gains and reduce the rate, remove a large number of deductions along the way (HMI being one of the big ones), and remove the corporate income tax.

I'd wait and see on a carbon tax or a VAT. I think getting rid of our massive energy subsidies would be enough to handle altering the price system for energy that a gasoline tax hike or carbon tax would be less necessary, and a VAT would basically just take the place of the mostly useless corporate income tax. But do so more efficiently. That I'd only want passed if I started seeing major shifts to cut spending, not just through entitlement fixes but across the board. Which I haven't yet seen even fixes for medicare/aid and OASI coming into the public discussion.